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While smart-beta index-based exchange traded funds are beginning to gain a wider following, the indexing methodology and investment strategies are still somewhat of a black box. Consequently, there is still an urgent need to educate investors on the relatively new products.

On the recent Multi-Factor Index Investing webcast, Scott Conlon, portfolio strategist for State Street Global Advisors, David Mazza, Head of ETF Investment Strategy at SSgA, and Dimitris Melas, managing Director and Global Head of New Product Research at MSCI, provided the lay of the land on smart-beta, or advanced-beta, index ETF investments that utilize multiple factors to select component holdings.

The greater need for information is understandable as the newer indices are vastly different from traditional beta indices. The new breed of smart-beta funds still passively track a benchmark index, but the index itself employs actively managed styles. Specifically, indexers focus on specific factors to select component stocks.